The launch of Tabby, an e-commerce start-up that offers the buy now pay later model, came at a fortuitous time – just before the coronavirus pandemic was beginning to spread around the world.
The company, which works on the layaway model that was pioneered by struggling retailers during the Great Depression, soon found a booming market after the pandemic affected consumer credit and drove people to shop more online.
The original layaway model was simple: customers who couldn’t afford to pay for merchandise in full could “lay it away” and pay for the item with a series of instalments, either weekly or monthly. Once it was paid off, they could take it home.
The concept lasted well into the 1990s, with major retailers the world over offering consumers the credit payment plan. But as credit cards became more popular, consumers no longer relied on instalment plans to pay for their goods, instead opting to flash the plastic and take their items home on the same day.
But then came the 2008 financial crisis and retailers, including Walmart and K-Mart in the US, again turned to the layaway service to help revive sales as the credit crunch took hold and cash-strapped consumers slashed spending.
Fast-forward to 2020 and the onset of the Covid-19-induced economic crisis – the worst since the Great Depression – and retailers once again looked to their 1930s counterparts to disrupt the way we pay for our goods.
The BNPL business model, which allows consumers to make online purchases instantly and pay for them later, is booming, with services like Sweden's Klarna, the US-based Affirm and Australia's Afterpay offering flexible financing to consumers, according to the 2020 Global Payments Report by payment processing company Worldpay Group.
“Catering to growing consumer desires, particularly from Gen Z and millennials, they offer flexible financing on a situational basis without the longer-term commitment and expense of traditional credit cards,” the report says. “We project these payments to account for 9 per cent of e-commerce spend by 2023, triple the rate we reported in 2018.”
In the Middle East, the concept is also taking hold, with the likes of Postpay, Spotii, Cashew and Tabby all jostling for a slice of the burgeoning BNPL market.
Launched in 2019, the Tabby platform went live in February 2020, says Hosam Arab, the company’s co-founder and chief executive.
Aiming to capitalise on the digital acceleration in the UAE and Saudi Arabia during the pandemic as consumer credit declined and people embraced contactless payments, Mr Arab says two key drivers led to the launch of Tabby.
“One is the lack of availability of instant financing options and two is the over dependence on cash [in the region] and my desire to provide or create an alternative to consumers and retailers alike,” says the former co-founder and chief executive of fashion e-commerce site Namshi.com, which was fully acquired by Emaar Malls in 2019.
“The large dependence by consumers on cash … poses a lot of challenges for retailers in the market to scale their businesses because they're essentially having to front the cash themselves and take a risk on the customers’ willingness to pay.
“So what we decided to do is provide customers with a replacement, a very valuable alternative to cash on delivery in the form of free instalments.”
According to a November 2020 survey by Checkout,com, nearly half of all consumers in the UAE said they expect to shop online more often, indicating a shift in the way they shop. Meanwhile, six in 10 respondents surveyed said they preferred digital payment channels rather than cash on delivery.
The Tabby platform integrates directly into merchant checkouts and gives customers a way to pay for the purchases with just 25 per cent of the transaction value paid at the time of purchase, Mr Arab says.
Tabby pays the merchant the remainder of the purchase price, which is then automatically charged to the customer over three monthly instalments at no cost as long as they pay on time. Tabby’s BNPL model is monetised primarily by charging merchants a commission on sales generated through its platform, he adds.
So far, Tabby has teamed up with about 500 large and small retailers including Ikea, Marks & Spencer, Home Centre and Toys R Us to offer products spanning lifestyle, beauty, fashion, homeware and sports.
However, it is also looking at expanding its range of offerings to include online educational courses as people seek to upskill during the pandemic, as well as offer insurance options.
“Our focus has been on the millennial and Gen Z consumers. And what this consumer is typically buying online is fashion, beauty, lifestyle, and baby products,” he says.
“However, we've seen a lot of demand from merchants in other sectors and we're experimenting with this as we speak. We provided one of the first car insurance options in the market, and we were also doing some online education courses and marketing courses.”
Mr Arab says Tabby experienced rapid growth of 400 to 500 per cent month-on-month in the early days of the platform’s launch, but this figure has since pared back to about 100 to 200 per cent.
“It's very difficult to look at it on an annual basis [as it is less than a year since the launch] and it's an unfair comparison to look at what we did in March versus where we are today,” Mr Arab says.
In December, Tabby raised series A financing of $23 million in debt and equity led by Arbor Ventures and Mubadala Capital, among others, to fund its next stage of growth as it looks to “scale its product and engineering capabilities”.
“Fortunately, we've been scaling this business exceptionally well so far,” Mr Arab says.
“One of the reasons for this relatively larger round of funding that we just secured is because the business has gotten to a scale that requires it. But this should last us easily until the end of 2021, before we require any additional funding.
As for Tabby’s future expansion plans, Mr Arab believes there is ample opportunity for growth in the region.
“This is a very regional business and while we work with international retailers selling into the market, our consumers are all local. So we're targeting customers both in the UAE and Saudi," he says.
“Having said that, we constantly look at partnerships to build with global players that are either interested in the market and the consumers here, or global players that are interested in the retailers [here] that are looking to go global as well.”
Q&A with Hosam Arab, co-founder and chief executive of Tabby.ai
What other successful start-up do you wish you had started?
The business I really admire is Airbnb. It's a business that single-handedly changed the global travel industry for the better and forever, all while the founders were trying to make ends meet. Moreover, it's a company that was able to withstand the complete standstill in travel due to the pandemic and come out even stronger with an IPO a few months later.
What new skills have you learnt since launching your business?
Since launching Tabby, I've learned that everyone on the team can do much more than they think they can. At Tabby, we hired many fresh graduates with little experience in our particular industry. Time and time again, we're seeing our employees overcome our, and their own, expectations of themselves and perform in ways we collectively never thought possible, from negotiating agreements with large-scale partners to onboarding new retailers onto our platform and supporting their growth. Your people have great potential; you just need to help them realise it.
Where do you want to be in five years?
We want to help our retail partners and customers improve their ability to transact online. What that looks like in five years is a full range of products that eradicate friction in the buying and selling process. In a few years, retail checkout will look vastly different and we want to lead that change.
If you could do it all differently, what would you change?
I would have taken some time off between Namshi and Tabby.